Henry’s strong defence of the tax to an Australian Business Economists lunch included a lucid explanation of how the tax will work and why it is more efficient than a royalty tax on production volumes.

He cut through the complexity and, in contrast to Treasurer
Wayne Swan
, made the critical link between the tax credits built into the taxation structure and their positive relationship to lowering the weighted average cost of capital of resource projects.

Henry put a new perspective on the use of the bond rate as the hurdle for the resource tax and why that risk- free rate does not and should not be the same as the typical 15 per cent rate of return for a resource project.

As well as showing up Swan, he did what Prime Minister
Kevin Rudd
has failed to do – he explained why a tax on resources would encourage ­investment in the sector.

But there was a missing piece from the Henry speech that goes to the heart of the matter for investors.

That piece was left to be explained by BHP’s Kloppers.

In an exclusive interview with The Australian Financial Review’s Tony Walker, Kloppers warned that BHP’s dividends could fall or be stopped ­entirely.

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This should not be seen as a hollow threat. Nor should it be viewed as contradictory to what Henry said in his speech.

In taxing rents, the RSPT is imposing a charge on profits over and above the next best alternative investment option. In that sense it would not stop BHP from continuing to ­operate a profitable mine.

But the Kloppers point, ignored by Henry, is that the retrospective nature of the tax means that in the short term it will have implications for the shareholders who provided the sunk capital.

This is dynamite for the sharemarket, which has probably been a little too sanguine about what the tax will mean.

The second leg of the Kloppers criticism of the RSPT is that the Treasury’s assumptions appear to have ignored the mobility of capital.

But this warning has to be weighed against the availability of cost effective resources with proximity to ­shipping.

The Henry speech and the Kloppers interview are megaphone diplomacy that did not need to happen.

Read the Henry speech and you will see that parts of it relating to the RSPT are remarkably similar to a speech given to a Minerals Council of Australia conference on September 17 last year by David Parker, executive director at Treasury’s revenue group.

Parker’s speech to the MCA in the dying days of the Henry tax review was a clear warning to the industry of where the bureaucracy was heading and therefore where the government might end up.

For some reason, the industry chose to ignore this. Its assumption that it would be consulted proved wrong.

Having been blindsided by the government, the industry response has, generally speaking, been to ignore the opportunity for dialogue.

The flip side of an industry living in the dark is a government that failed to explain the tax. It took a week of bumbling before its most senior public servant came out yesterday to provide a comprehensive explanation of its merits. It is now up to Swan to get both parties to the negotiating table to nut out a compromise.

The cosy club that is
Guinness Peat Group
plc (GPG) looks to be unable to deal with the value trap created by its own inaction and appalling corporate governance.

An incisive article in the Weekend AFR by Pamela Williams highlighted the reasons why the company has badly underperformed for two years and is a shadow of its former self.

The company, which is listed in Australia, New Zealand and the United Kindom, is trading at a 30 per cent discount to its net asset value.

Its shares have underperformed all the relevant stockmarket indices since 2007 and there is no sign of that changing. Chairman
Ron Brierley
was once a hero of the retail investment community in his home country of New Zealand.

He is now the butt of some very cynical and cutting jokes. An article in one of the New Zealand papers last week made a mockery of his ­efforts to restructure the company and restore value to shareholders.

The cynicism exists for good reason. The market has little or no confidence in management.

Brierley and his team, including Gary Weiss, Blake Nixon and Tony Gibbs, have failed to deliver on a key promise to come up with a restructure of the company by last week’s annual meeting.

The AGM was notable for the 45 per cent opposition to the remuneration report. Remuneration is a sore point at GPG because the directors appear to be getting richer while shareholders suffer mediocre returns.

One victory for the board last week was the election of
Ron Langley
as a director of the company.

GPG likes to pass him off as an independent director but that depends on your definition of independent.

There are those that believe that Langley cannot be called independent because he is a former employee who once worked for Brierley at Industrial Equity.

The guts of the GPG problem is its 100 per cent ownership of Coats, one of the world’s largest thread makers.

Some shareholders have been led to believe that the restructure of GPG, when it comes, will involve the in-specie distribution of shares in Coats to GPG shareholders.

That might be combined with a cash distribution from the sale of ­assets.

Coats is the centre of speculation about a restructure because, as Goldman Sachs analyst Adrian Allbon said, it is the company’s single largest investment and is worth more in public hands than in private hands.

But Allbon noted how difficult it would be to sell the business or list it. Barriers include the limited trade buyers, challenges in pricing its liabilities and tight credit availability.

The option of doing nothing is possible and all that will mean is that the stock would continue to trade at a steep discount to net asset value.

It is a paradox that has not escaped shareholders that Brierley and Weiss built their reputations buying undervalued assets and realising value for shareholders.

That has morphed into getting stuck in a value trap while collecting handsome directors’ fees and lucrative options.